Coffee finds support as producers pessimistic on 2013 crop

General Comments: Futures were higher on follow through speculative buying on Friday, but London and Sao Paulo moved slightly lower yesterday with New York closed. Bulls were not able to force new highs for the week, but it is possible that the markets could rally more this week. Charts show that some lows have been formed in all three markets and still show that all three markets are in short term up trends. Vietnamese producers told wire services over the weekend that they expect sharply lower production for 2013 and that production could drop up to 30%. Current crop development is good this year in Brazil, and production areas are getting beneficial rain for the developing crop. Central America crops are getting harvested, and conditions are called good there. There are widespread reports of rust on the trees and leaves, and Roya has become a big issue as well. It is possible that many Central America and Mexico producers will harvest much less Coffee next year if they are affected by this disease, and many seem to be affected. Costa Rica says the country could lose up to 30% of the crop, and Mexico expects to see a significant impact. Crops in Guatemala, Honduras, and El Salvador have also been affected, but so far crops in Nicaragua seem to show less damage. Colombia is reported to have good conditions.

Overnight News: Certified stocks are higher today and are about 2.606 million bags. The ICO composite price is now 138.87 ct/lb. Brazil should get mostly dry conditions this week and scattered showers and storms this weekend. Temperatures will average near normal. Colombia should get mostly dry conditions, and Central America and Mexico should get mostly dry conditions. Temperatures should average near to above normal. Latin American Washed Coffee exports were 2.25 million bags in December, up 6% from 201. Marketing year to date exports are now 6.14 million bags, up 16% from last year.

Chart Trends: Trends in New York are up with objectives of 158.00, 160.00, and 170.00 March. Support is at 154.50, 151.00, and 149.00 March, and resistance is at 160.00, 162.00, and 164.00 March. Trends in London are up with objectives of 2100 and 2290 March. Support is at 1940, 1930, and 1910 March, and resistance is at 1990, 2000, and 2020 March. Trends in Sao Paulo are up with objectives of 199.00 March. Support is at 187.00, 184.50, and 183.50 March, and resistance is at 193.50, 195.00, and 196.00 March.

COTTON

General Comments: Futures were mixed, with nearby months a little higher. Bull spreads were featured as the market tries to find some Cotton. The rally started last week after the Chinese government auction failed to sell much out of government supplies. Buyers there were not interested because of poor quality and relatively high prices. The news implied that demand for world Cotton can stay strong as mills in China will still import despite big import fees and taxes. USDA showed strong export sales to help the rally, and good economic data for the U.S. helped the rally, too. The current low prices are bringing into question what farmers in Texas and the Delta and Southeast will plant this year. Some are wondering if planted area might be lower this year here in the US due to weak prices against competing crops. The area lost would go mostly to Corn and Soybeans. Current weather features some precipitation in Delta and Southeast areas, but western Texas was mostly dry. Delta areas will turn dry this week. Ideas are that the market can continue to work higher overall.

Overnight News: The Delta and Southeast will see mostly dry conditions, although a few showers are possible late in the week. Temperatures will average near to above normal this week and near to below normal this weekend. Texas will get dry weather. Temperatures will average near to above normal. The USDA spot price is now 73.71 ct/lb. ICE said that certified Cotton stocks are now 0.105 million bales, from 0.103 million yesterday. Informa estimates US Cotton planted area at 10.3 million acres for the coming year.

Chart Trends: Trends in Cotton are up with no objectives. Support is at 78.00, 77.00, and 76.90 March, with resistance of 79.60, 79.90, and 80.55 March.

About the Author

Jack Scovilleis a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988. Jack writes daily commentaries - Morning Grains and Softs, in both English and Spanish and is regularly quoted around the world by news & wire services including Dow Jones, AP, Bloomberg, and Reuters. You can contact Jack by phone at (312) 264-4322 or by email at jscoville@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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